Forex (Foreign Exchange) Theory

What Is Forex (Foreign Exchange)?

"Forex", "FX" and "Spot FX", are all terms used to refer to the Foreign Exchange market. This is the largest financial market in the world, with a volume of over $3.2 trillion a day! It is 24 hours a day from 10pm Sunday to 10pm Friday (GMT). Forex has no centralized exchange, and is primarily traded through banks, brokers, dealers, financial institutions and individuals.

The New York Stock Exchange trades $25 billion a day, so you can see how enormous the Foreign Exchange market really is. It actually equates to more than three times the total amount of the stocks and futures markets combined!

What Is Traded On The Foreign Exchange Market?

The simple answer is currencies. When trading in Forex you are simultaneously buying one currency and selling another. Currencies are traded in pairs; for example the Euro and the US Dollar (EUR/USD) or the British Pound and the Japanese Yen (GBP/JPY).

As you are not actually buying anything physical, this can sometimes be confusing. Think of it as buying a share in a particular country. When you buy, for example, the GBP, you are in effect buying a share in the British economy, as the price of the currency is a direct reflection of what the market thinks about the current and future health of the British economy. With the rise of the Internet, anyone can trade currency much the same way that we can invest small amounts of money in the stock market.

You should not rush into trading with dreams of making millions; you need to learn the basics and start out cautiously, but know there’s no reason why you can’t make money in this exciting, fast-moving market.

How To Make Money In Forex

The most important factor when trading Forex is that it is based on the strength of various currencies in relation to other currencies, which determine their relative worth. Trading the strongest currency verses the weakest currency is the ultimate goal. For example, it might take 1.400 Dollars to buy one Euro. This is the exchange rate and almost all other currencies have published exchange rates. The profit lies in the variation or fluctuation in the prices. These rates change all the time, maybe by just a very small amount but a change nonetheless. This means that if you buy 1,000 Euro’s for 1,400 Dollars (the above exchange rate) and the exchange rate then changes to 1.420 Dollars to buy one Euro, you can sell your Euro’s back for 1,420 dollars, a profit of $20.

Now that’s not a huge amount of money, but if you are working with a VantageFX UK leverage of 100:1, you can make that $2000 (up to 500:1 available subject to status) and do very well for yourself. Remember, you can make as many trades as you want, whenever you want. This is another appealing aspect to the Foreign Exchange market: it’s a 24-hour, 5-day a week market.

With the introduction of PC and mobile trading platforms, you can trade anytime from anywhere. All you need is a computer and a decent internet connection and you’re in a market where there are endless opportunities to make money.

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